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Look beyond fuel taxes

By Ian Parry

The Philadelphia Inquirer, April 11, 2004

A recent Bush campaign commercial criticized Senator John Kerry for having “wacky ideas . . . like taxing gasoline more so people drive less.” The ad was referring to a speech Kerry made ten years ago in which he called for an increase in the federal gasoline tax of 50 cents a gallon, a position Kerry now repudiates. But is a 50-cent hike in the gas tax really a prudent policy?

In one sense, the answer is yes. Drivers impose a wide range of economic and environmental costs on society that they do not themselves take into account. These include exhaust emissions that pollute the air, carbon gases that contribute to potential global warming, clogging of streets and highways, more traffic accidents, wear and tear on roads, and greater vulnerability of the U.S. economy to world oil price shocks and price manipulation by OPEC. Most people don’t consider these costs when deciding how much to drive, so they end up driving too much, guzzling too much gas – and increasing pressures to import more oil.

Higher gasoline taxes are one way of raising the cost of driving so that people will be fully charged for the social and environmental costs of driving – and an increase in gasoline taxes of just over 50 cents a gallon could be justified on these grounds. In this regard, the Kerry of a decade ago appears to be right.

But considered more broadly, higher gasoline taxes are not really the best answer. They are far less effective than other available policies at addressing many of the problems that cars and trucks exacerbate. Linking fuel usage to broader transportation policies would provide more practical and palatable solutions.

Take traffic congestion, which currently costs the nation about $70 billion a year in wasted time and extra fuel combustion. The best way to reduce congestion would be to charge people for driving on busy roads at peak times, thereby encouraging them to alter work habits to avoid driving at rush hour, to drive on less congested routes, and to consider public transportation. Higher fuel taxes are a far less effective solution, because they raise the costs of all driving, regardless of whether it is in urban or rural areas, or occurs at peak or slack periods.

Or consider traffic accidents, which result in around 40,000 highway deaths each year. Accidents really depend on the number and size of vehicles on roads, and the behavior of drivers, rather than on the amount of gasoline consumed. An effective policy to reduce the number of accidents would involve raising the per-mile costs of driving, particularly for those with highest driving risks, such as young drivers with previous crash histories. This could be achieved by tax incentives to encourage companies providing auto insurance to make annual premium payments vary in proportion to how many miles are driven.

And although motor vehicles account for about 20 percent of the economy’s carbon emissions, most of the lowest-cost options for reducing emissions are in the electric power sector. An efficient policy to reduce the nation’s greenhouse gases would therefore need to encompass electricity, rather than placing the entire burden on motor vehicles.

A similar argument can be made for taxing all oil uses, rather than just the 45 percent of it consumed by motor vehicles, to reduce the economy’s dependence on oil. As for local tailpipe pollution, it is currently being reduced with the tightening of allowable per-mile emissions standards on new vehicles.

A decade from now, after the regulations have been fully phased in, vehicles on the road will be a good deal cleaner than today’s vehicles. And higher gasoline taxes would do little to reduce wear and tear on the road network, which is mainly caused by heavy, diesel-fueled trucks.

Instead of debating fuel taxes, our presidential candidates would be better advised to consider really innovative long-range solutions to the nation’s transportation problems – and to tie these solutions to environmental and other benefits that would follow. Worthwhile initiatives would promote experiments with toll lanes and other road pricing schemes at the local level, encourage pay-as-you-drive auto insurance, implement a nationwide program to moderately limit carbon emissions from all sources, and set up a system of fees on large trucks, which cause the most damage to road surfaces.

If political candidates could come to some agreement on these policies, the result could enhance our energy security, reduce traffic jams and road deaths, and provide bona fide environmental benefits as well. And that would be worth driving for.


Ian Parry is a Fellow at Resources for the Future, a Washington, DC, think tank specializing in energy and natural resource issues.

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